euro

Here comes S&P, throwing their opinions around with threats of a credit downgrade. I guess nation-states now know how Americans feel, being FICO scored over whether they shop at Walmart, literally being denied a job.

It's quite the bloodbath with Germany, France, Austria, Belgium, Ireland, Italy, Spain, Portugal, The Netherlands, Slovenia, Estonia, Malta, Slovakia, and even the frugal, we actually paid our WWII debt Finland being place on negative credit watches. A negative credit watch is a flip of a coin chance of being downgraded in the next 90 days.

The two other Eurozone countries, Cyprus and Greece are already downgraded, hammered by S&P.

What makes this political, is S&P has some policy prescriptions, they want to see, a new fiscal compact, or a fiscal union, i.e. Euro bonds. S&P has further requirements to come out from under their sovereign credit ratings thumb:

Eight banks out of 90 failed the European Stress Tests, five in Spain, two in Greece and one in Austria. Sixteen banks are close to failing, defined as below the 5% capital ratios for the next two years. Another German bank would have failed, but they refused to disclose their data.

Banks were allowed to cheat and raise capital months before the actual test:

For the 2011 exercise, the EBA allowed specific capital increases in the first four months of 2011 to be considered in the results. Banks were therefore incentivised to strengthen their capital positions ahead of the stress test.

In spite of raising €50 billion in 2011 before the tests, 8 banks failed anyway with 16 being damn close to failing. Without the raising of additional capital cheat, 20 banks would have failed. The test involved a lowering by 4% of GDP, but no exposure to sovereign default. From the EBA press release:

The European Commission on Thursday urged Hungary to cut its budget deficit faster, even as government officials reiterated the 2010 fiscal gap may reach almost twice the target agreed with lenders including the EU.

Greece is getting a bail out. Well, not really, because they are getting loans, oops, wait, yes really.

The Wall Street Journal notices Greece will pay more in interest than if it had gone to the IMF. According to the Wall Street Journal the two possible rates for the €30 billion in loans is 5.33%, fixed and 4.14% variable.

Either way, the IMF is way cheaper. It uses it’s own interest rate as a base, and it levies different surcharges. The fund’s rate works out to 2.71%, as of last week, for a €10 billion package.

Now Bloomberg is reporting a €45 billion loan package, €30 billion from the Euro-Zone finance ministers and €15 billion from the IMF. Bloomberg is reporting the current Greek bond yield is 6.98%.

Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, a situation that will lead to the break-up of the euro bloc, according to Societe Generale SA’s top-ranked strategist Albert Edwards.

Up until now, Greece has remained afloat due to the belief that the rest of Europe would bail them out. That belief took a body blow yesterday when the ECB said it wouldn't change the rules for Greece.
Because of this, the Euro tumbled today, while yields soared for Greek debt.

However, the real shocker for the market was the revalation that Greece was "looking at everything" in order to meet its borrowing needs. This indicated that it wouldn't be able to afford the higher interest rates in the not too distant future.

Europe recorded the biggest trade deficit in 2008 since the euro’s introduction 10 years ago as higher oil prices boosted energy costs and the global financial crisis curtailed exports.

The region’s trade deficit of 32.1 billion euros ($40.5 billion) compared with a surplus of 15.8 billion euros in 2007, the European Union’s statistics office in Luxembourg said today.

The spreading of the global recession is curbing demand for European products, adding to pressure on the economy, which shrank the most in 15 years in the fourth quarter. Volkswagen AG, Europe’s largest carmaker, said deliveries fell about 20 percent last month and that sales in the export markets of Brazil, Russia, India and China have been “particularly hit” by the credit freeze.